Softening real estate market. Interest rates hiking. And the sale of new construction homes seeing a new record low this past September. What does this mean for the pre-construction condo market in Toronto? And why are we seeing a substantial slowdown in a market that not that long ago was surging? 

Main Causes of Slow Down in the Pre-Con Market: 

Rising Interest Rates 

With the recent surge in inflation across the country, interest and mortgage rates have subsequently soared. The higher monthly payments due to interest rate hikes, in a city that is already costly to live in, may just be out of the question for some potential buyers. 

This is where the Stress Test comes in. A stress test determines whether you’d still be able to pay for your mortgage if interest rates were to continue to increase. Based off of your financial situation, mortgage brokers will factor in the Stress Test to determine your mortgage eligibility. As of June 1, 2021, mortgage Stress Test rates increased to 5.25%. With such a major jump in interest rates and the impact to the stress test environment, the Toronto Area alone has seen an 8-9 percent decrease in customer borrowing power. 

Check out this Stress Test Calculator to see where you stand.

Rise of Construction Costs 

According to the Financial Post, Re/Max’s October condominium report shared that development costs for new builds have risen an estimated 18-22 percent in the past year alone. While a staggering number it is not all that surprising and has left many contractors struggling to stay in budget. With this drastic increase in construction costs, a slowdown in pre-con builds was almost inevitable. 

Labour Shortage 

It’s no secret that the construction industry has been hit with quite the labour shortage. And it works out to be a pretty simple equation; no one to build means no building. Between an aging workforce, the pandemic, and supply chain delays, Toronto contractors have been struggling to fill jobs. Not to mention, the many strikes protesting poor working conditions and wages that are nearly unliveable due to inflation. The Toronto pre-con market has been hit hard while facing the realities of labour shortage.  

Supply Chain Delays 

From trouble getting materials, driver shortages, increased freight costs, demand returning, oh and inflation…it’s no surprise that these supply chain disturbances have directly impacted the rising construction costs and have been a major influence on the pre-con condo slowdown in Toronto. A cocktail of the current geopolitical environment, surging fuel prices, labour shortages, and a seemingly ongoing ripple effect from the pandemic, have come together to drastically impact the supply chain. Ultimately disrupting the construction industry.  

Permit and Project Approval Delays 

A study from the Building Industry and Land Development Association (BILD) found, that on average, it takes 32 months from the time the developer submits their application to its approval. Wait-times like that in real estate only mean one thing, a big price tag will follow. And that is a price tag many are unable to pay at the moment. The waiting game developers must play to get their build approved is both timely and costly. 

Project Cancellations 

A report shared by Urbanation Inc, shared that the GTA had 35,000 new condo units scheduled for this year, with only approximately 26,000 actually being completed by years end. Meaning that nearly 10,000 planned condo units have fallen through this year alone in the city. With all the culprits listed above, it isn’t hard to understand why projects aren’t getting completed. Project cancellation is widely disturbing the pre-con landscape in Toronto. 

Is it a Good Time to Buy? Yes! 

Buyers – it is your time to shine! With a quieter market, more inventory, and a down pressure on the market, you my friend, currently hold the upper hand. Here is the thing though, the GTA will always hold an appeal for people and the market will not always stay this quiet, this may be your chance to jump into the pre-construction real estate world. 

Quiet Market 

After a bumping couple of years, the market is seeing some quieter days with fewer buyers. As a buyer this is fantastic news. Gone are the dog-eat-dog cutthroat days. Instead, they have been traded in for strategy and thorough thinking. This quieter market is also the perfect opportunity for you to get your finances in order and make informed and thoughtful decisions. 

Less Bidding Wars & Less Competition

A quitter market with fewer buyers naturally results in less bidding wars and competition. This means you won’t be wildly overpaying for a place due to a price spike from a bidding war. Less competition also means you are in the driver’s seat. And in real estate talk that means we’re back to the days of putting conditions on our offers. During the peak of the heat in the real estate market things like appraisals and home inspections were left out of offers. We’re happy to say negotiation is the name of the game, once again – and the odds are looking in your favour! 

Get a Great Deal on Assignment

With the apparent slowdown of pre-construction condos in the city, investors may be feeling a little nervous about their pre-con build. With that they may be looking to back out of their investment. And lucky for you, their loss may be your great gain. Assignment sales often offer the condo at a better price and a sooner move in date. Win-win! Do some research and connect with an agent who specializes in assignment sales to see if this is an option for you. 

Check out some of our related articles:

• US Inflation Declines. Can Canada’s Inflation Rate, and mortgage Rates, be far Behind? 
• Assignment Sale 101
• Things to Consider When Buying Pre-Construction